Digg has been in talks about acquisition with several companies, News Corp is just one of them. Rumors say negotiations have not been able to settle on a number higher then $150M so Digg may instead go into a second round of financing with it's backers.
Controversy is partly based on Diggs claim of 20 million unique monthly visitors and a high rate of growth, whereas the data from Comscore shows only 1.3M uniques and flat growth since April.
According to Alexa Digg is ranked as the 89th most visited site on the web. We all know YouTube was recently acquired by Google for $1.5B but they are ranked the number 9 site on the web. Also, as seen in the graph below, Youtube is still in growth mode while Digg has clearly flatened out.
YouTube vs Digg vs MySpace
NewsCorp *did* recently purchase the social bookmarking website MySpace for $580M but that property has been climbing in value ever since it was purchased. Some might even argue that Rupert Murdoch had no idea what he was buying when he bought it. When compared to the recent purchase of YouTube you can't say he didn't get a great deal though.
So, at this time Digg is *NOT* being purchased by News Corp. Though we do not know what offers were on the table, we do know they fell short of Digg's $150M price tag. But, is Digg worth $150M?
When comparing the value of Internet deals it's good to have something to compare them too.
The above data comes from http://snapshot.compete.com/digg.com
What we can clearly see is that Digg is not worth nearly what YouTube and Myspace are worth. To make matters worse Digg does not have the retention ability the other sites have.
Even Google, which is ostensibly a search site, holds people longer then Digg does!
There is no denying that Digg is a hot Internet property.
At the same time, not too long ago, a Digger did an online survey of Diggers and found that a vast majority of them use ad-blocking software.
The News Corp purchase of MySpace has seen tremendous growth but, how large of a portion of MySpace users block advertising? Since Digg's only source of revenue *IS* advertising dollars one would have to imagine that the high use of ad-blocking software among it's membership must be a contributing factor in keeping it's potential acquisition price low.
Unlike MySpace, Digg is about sending people to other websites. Myspace is built on the idea of getting a visitor to come to MySpace and set up shop. They then get their friends to do the same. What ends up happening is you've built a virtual neighborhood on line and you need never leave the confines of MySpace.
Digg is the exact opposite of that. Digg is built on linking out and away from Digg. The Digg user experience is more along the lines of; visit, open links in new browser tabs, leave digg and read stories.
Yes, Digg users do return throughout the day to find more stories to read but the site is not built to *capture* it's audience. Where MySpace is a net, designed to keep people in, Digg is the trampoline, designed to bounce people away.
Of further concern is the high number of liberals who use Digg as opposed to Conservatives (the proclaimed market of FOX News, owned my News Corp.) How much of that left-leaning base will stay with Digg if it were to be purchased by News Corp?
The bigger question may be, "who would benefit from buying Digg?"
#1 - Google - They would probably get the most benefit out of purchasing Digg. Why? Becuase Digg is essentially just a news Agregator with peer review thrown in. The only 'original' content on Digg has to be the user comments attached to stories.
#2 - Yahoo! - Though they would not benefit as much as Google might, it would be another trophy to put on the mantle alongside flickr and de.lici.us. Yahoo does not *need* Digg but, as everyone knows in big business, "Just because you don't need something doesn't mean you can't gain by keeping others from owning it."
#3 - MicroSoft - Well... that one is a bit iffy given Digg's left leaning, pro-Linux/Mac anti-Ms membership base. They could benefit from the technology aspect but I don't think they would retain much of what *is* Digg after a purchase.
About Alexa:
I know some people will say, "Alexa? Those statistics are wothless. They only track hits by people who have the Alexa toolbar installed." I have two counterpoints to that argument:
1) Look at the top 10 websites according to Alexa. Is there a single one in the top ten that you feel does not belong there?
2) I do not have hard numbers to back this up but... We know most Diggers block ads, what about Alexa users? If the background numbers on Alexa users show them to be less tech savy and not ad-blockers then it stands to reason that the information Alexa provides *would* carry far more weight to a buyer of Internet companies.
This article was written based on information gathered from:
Seeking Alpha
Techcrunch
UPDATE
A reader just pointed me to this link from a year ago which contains an interview with Kevin Rose about the future of Digg.
A key point is that there has only been one round of VC fundraising for Digg, to the tune of $2.8 million. so, an asking price of $150M would be a return on invesment of roughly 53 to 1!!!
Now, Kevin rose does still own at least 30% of the company and I'm going to assume that the VC funders only acquired a small stake in Digg for their money. Which begs the question, "Who is setting the price?"
I'm willing to bet that Digg is under the same delusion that affected friendster. Their VC backers are probably looking at the $150M and seeing that only about $50M of that will go to them which puts them below a 20 to 1 pay-off on their investment.
If you remember from early episodes of Diggnation, when Kevin Rose talked about the VC fundraising, Kevin did state that it was a hard sell getting only $2.8M because the VC folks wanted to give over $10M and take majority ownership. Kevin and Jay had to fight to get a smaller investment and likewise they kept a larger share of the ownership.
My advice to Kevin and Jay? Take $100M. You will each end up with a very nice chunk of change and you won't fall victum to the friendster disease.